Armenian Recession Deepens In February

Armenia’s economy appears to be plunging deeper into a recession, contracting by 3.7 percent in the first two months of this year, according to official statistics released on Tuesday.

The bulk of the drop, the first since the early 1990s, was registered by the National Statistical Service (NSS) in February 2009. The country’s Gross Domestic Product (GDP) shrunk by only 0.7 percent in January.

The latest macroeconomic data is a further indication of the growing impact of the global economic crisis on the Armenian economy. Its already modest exports tumbled by as much as 45 percent year on year in January-February 2009. The recent fall in international prices for base metals, Armenia’s number one export item, was clearly a key factor.

The fall in Armenian imports was more modest: just over 21 percent. The NSS is expected to report more detailed export-import data next week.

Industry, the most underperforming sector of the economy in recent years, contracted by about 10 percent year on year during the two-month period. Industrial output was dragged down, among other factors, by a 20 percent reduction in electricity production. Whether that was caused by decreased domestic consumption or electricity exports to neighboring Georgia and Iran is not yet clear.

Construction and services other than trade, sectors that together accounted for almost 44 percent of GDP in January-February, fared better. According to the NSS, the construction sector shrunk by 1.5 percent after years of rapid growth driven by strong demand in expensive housing and office space. The construction boom ended with the onset of the global downturn late last year.

The NSS also reported 5 percent growth in retail trade turnover, something which contrasted with strong anecdotal evidence of dwindling sales in shops and markets across the country. The surprise increase may have been the result of recent months’ introduction of cash registers aimed at reducing widespread tax evasion in the sector.

Gagik Minasian, chairman of the Armenian parliament’s committee on finance and budgetary affairs, downplayed the worsening economic situation in the country, saying that it is following a worldwide pattern. “This is just one of the manifestations of the global economic crisis,” he told RFE/RL. “I don’t think that we should feel disheartened when comparing our macroeconomic indicators to those of other countries.”

But Bagrat Asatrian, a former Central Bank critical of the Armenian government, was far more concerned about the latest macroeconomic data. “If things continue like this, we will face an economic decline of 10 percent or even more this year,” said Asatrian. The sharp fall in Armenian exports is particularly alarming, he added.

According to Minasian, the government is doing its best to shore up the exports by helping large mining and chemical enterprises hit hard by the crisis kick-start their operations and providing financial assistance to smaller export-oriented companies. Prime Minister Tigran Sarkisian said on Friday that the government will invest 25 billion drams ($68 million) in 18 such companies that have come up with concrete business plans.

Another, more important element of the government’s anti-crisis strategy is the implementation of large-scale road, housing and other infrastructure projects mainly financed by foreign donors. The government also plans to use external loans and grants for providing credit to small and medium-sized enterprises.

Asatrian was skeptical about these measures, calling for a sweeping revision of economic policies pursued by the Armenian authorities. He also said government policies will be ineffectual unless they also address what he called a lack of public trust in the country’s leadership.